Wednesday, April 8, 2009

Amidst the collective outrage regarding the executive bonuses paid out by firms receiving public aid, there has been a lingering question that begs an answer: “What on Earth were they thinking”? Not only what was AIG management thinking when they paid out $165 million in performance bonuses, but how could the recipients in good conscious accept these bonuses? Thankfully, Jonathan Clements (Citigroup employee, not AIG) provides us with the answer in today’s Wall Street Journal. Mr. Clements asserts that with no bonus, he will simply have no incentive to work.

F. Scott Fitzgerald was correct; the rich are different. Mr. Clements makes this abundantly clear. Their primary and perhaps sole motivation is money – I guess that’s why they are rich and I am not. Apparently there are two sets of values, one for working people and a separate one for people like Mr. Clements. Clearly, our nation’s celebrated work ethic is not for the rich. The romanticized myth of America is that there is great regard for a job well done and that our nation’s greatest resource is the men and women who are engaged in productive labor. Working people take pride in their work and expect to be remunerated accordingly. If they don’t perform well, if they fail to meet objectives or worse, they won’t get a raise and most certainly not a performance bonus. If their performance is so dismal, they may risk losing their job entirely. Working people are also well aware that at times the vagaries of the national economy may make their value irrelevant. There are times when their employer, for the overall health of the company, must lay off workers irrespective of their performance. Sometimes the average worker just has to take one for the team.

Not so Mr. Clements. The company he works for is failing and must borrow money from the Federal Government? Irrelevant. Not only must he remain employed, he should also receive a handsome performance bonus, along with the rest of his colleagues at the failing bank. He asserts that because of the draconian taxation being proposed by Congress, he will simply lose any desire and incentive to work and will request an unpaid sabbatical. He is clarifying to the world that he takes no pride in the quality of his work or his responsibility to anyone other than himself and perhaps his family. Unlike an average worker, he can not possibly be expected to “take one for the team” or even for his country. In Mr. Clements’ case, the team (taxpayers) must pull together to provide him with his salary and his anticipated performance bonus, which is clearly not based on performance.

Perhaps this is what should be expected from a cohort reared on the objectivist philosophy of Ayn Rand. However, they seem to be missing significant aspects of the philosophy. By focusing on their personal self-interest, they fail to see how their behavior infringes on the rights of others. Mr. Clements receives a performance bonus underwritten by the US taxpayers, while the US economy is shedding jobs at a clip of about a half million a month.

Ultimately, the entire compensation culture of Wall Street is the problem. When ordinary people hear “performance bonus” they assume that it has the same meaning on Wall Street as it does in the companies where they or their neighbors work. In the majority of universes in the Milky Way Galaxy, bonuses are based on the overall performance of the company, as an incentive for the workers in the company to contribute to the success of the company. Performance bonuses are awarded ostensibly on a scale to those that most contributed to the company’s success. If the company did not perform well in a given year, there are no bonuses. Newsflash – if the company you work for had to borrow money from the Federal government to stay afloat, your company probably underperformed.

If the bonus is contractually guaranteed, then let’s just call it salary.

To paraphrase President Bill Clinton’s keynote speech at the National Governors’ Association in Philadelphia this summer – we should face this election by seeing the community we have and envisioning the community we want – and vote accordingly.

In my lifetime, I have seen the attitudes of the American people calcify into a disregard and almost antipathy toward labor and working people in general. Wealth is lionized, and we are all challenged to strive toward accumulation of wealth, and if not actual accumulation we should at least appear to be wealthy. Popular culture, from the 1980’s serials like Dallas and Dynasty to the Rappers of the 1990’s and Hedge Fund managers of the 2000’s, has aroused in Americans an alternative value system that is no longer based on sacrifice and hard work. It’s not Capitalism that is dead – the Puritan Work Ethic is dead.

At the same time that this collective striving toward consumption and opulence was occurring, there was a concurrent decline in the real wages of working people. Faced with the pressure to “keep up” many of us lived far beyond our means. This is true of both working people and our policy makers and industry leaders. This election marks the point in time where we decide who we want to be as a society – if we want to continue being a people who live off of wealth and in the absence of wealth, credit, or do we want to be a people who live off of real work.

The conventional wisdom, the United States economic narrative, is that the responsible disposition of wealth will in turn benefit working people by encouraging entrepreneurship and reinvestment of wealth into longer term productive measures. What has been demonstrated, time and time again, is that the wealthy are no more responsible with their wealth than are the non-wealthy. What we have seen is an increase in the accumulation of wealth and income, and investments made not in production of tangible goods and services, but in “exotic financial derivatives that gamble on the anomalies of the global economy” (Judy Shelton, WSJ, 10/13/08). These investments may have had some relation to actual labor and production at some point in time, but they are ultimately several layers removed from the work of the American people.